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Posted September 2018

Long live SABMiller

AB-InBev in Africa │Big news: AB-InBev declare themselves heir to SABMiller’s legacy as market maker and drop their own tactics as market taker. The question is: Can this metamorphosis boost investor confidence and revive AB-InBev’s share price?

Why would AB-InBev herd analysts and assorted pundits from around the world to Johannesburg for a three-day jolly in August, even wheeling in South Africa’s president Cyril Ramaphosa for a state dinner? Well, obviously they wanted to earn brownie points and get into the money men’s good books. Fact is, AB-InBev’s share price has been swooning after the takeover of SABMiller, wiping out 25 percent of the firm’s market capitalisation between August 2016 and August 2018.

No way AB-InBev’s top brass can shrug this off as irrelevant. Investors have a single-track mind. They are only in it for some gains, either by capital appreciation (share price moving up) or dividends. Usually, when share prices drop, fire alarms – beep beep beep beep – go off in executive suites. The share price, above all, remorselessly registers investor sentiment. It may be wholly irrational, but sentiment carries share prices up or down to a degree that cannot be explained by plain performance indicators like revenues and profits.

Time for AB-InBev to invite investors to a “love-in” (my term, not theirs) to brighten their mood and make them feel better about beer. As folks at AB-InBev could not have failed but notice, beer has an image problem. Which makes it Big Beer’s problem twice over. Google “beer”, “image”, “problem” and you will get 40,000 hits. Most of the hits refer to the United States. But the US market is AB-InBev’s major profit spinner, so they should worry. In the US and a host of other mature beer markets consumers think about beer in terms of opposites: mass versus craft; imported versus local; affordable versus expensive. AB-InBev tick most of these terms except it is not to their advantage as they do not exactly endear beer to increasingly fickle consumers. Worse still, AB-InBev failed to rise up to the challenge of craft beer early, allowing thousands of brewery start-ups to take market share and millions of hl beer in sales volumes away from them before they changed tactics and snapped up three dozen or so craft breweries around the world in short course.

It was a clever move to choose South Africa as the location for a big investor conference. Above all, the PR shindig was meant to drive three messages across. Rebuking the nay-sayers in the audience, who at the time had deemed the SABMiller deal far too expensive, AB-InBev boasted that buying SABMiller has proven a smart move and that they are on track to deliver all the promised cost synergies. Secondly, it allowed AB-InBev to make fair weather for Africa, presenting the continent’s beer markets in glowing colours. It is an “ideal business”, they enthused, with “Dream KPIs” for many years to come. The most memorable message, however, was AB-InBev’s claim that a leopard can change its spots. I know it is not really a flattering metaphor for AB-InBev, but hey, they were in South Africa. Leopards are among the country’s top five animals and a must-see on every safari. Besides, if AB-InBev can go for hyperbole, why should I discard a killer line?

Assimilate! But not the Borg way

The big news to take home from Johannesburg was that the company, formerly known as AB-InBev, was gone. The new AB-InBev, introduced to investors in Johannesburg, was actually a different breed, one that had assimilated SABMiller’s know-how and strategies – and not just taken over its markets, sacked its people and proceeded according to a well-worn plan. In the words of AB-InBev’s CEO Carlos Brito: “We have become a much stronger company because of the intellectual synergies captured in [the SABMiller] integration. […] We were able to learn, adopt and roll out these best practices across our expanded geographic footprint.”

On the face of it, lofty intellectual synergies sound like the perfect euphemism for nothing much – a put down actually – when compared with the measurable billion-dollar synergies AB-InBev has squeezed from past deals in cost, revenues, and working capital. Yet, in AB-InBev’s case, deriving “intellectual synergies” from SABMiller is the closest thing to them admitting that for once a company they had taken over had bested them in strategic insight and that by adopting SABMiller’s “market maker” tactics, they hope to safeguard their combined business’ future. Those were the silent implications of their message.

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